Destroying competition by destroying small business
It's incredible. But the legislative agenda of the Australian Albanese government is to outlaw small business. In doing this they destroy competition. Does the word 'crazy' come to mind?
I feel I’ve been somewhat obsessed of late with the Albanese government’s Loophole (industrial relations) Bill. But unfortunately, I also feel it’s essential. The Bill is such a crazy attempt to shut down the businesses of self-employed Australians that ‘obsession’ with explaining why it’s ‘crazy’ is probably essential.
Last week I provided you the YouTube link to my evidence before the Senate Committee. (You Don’t Protect Something By Destroying it!) Following my evidence on that day (10 Nov 2023) I received a follow-up from the Committee with a request to answer 2 questions from the key independent senator, Senator David Pocock.
The questions go to the core issue of the right to be self-employed plus flow on implications on the impact on competition and the power of big business. I’ve provided a long detailed response to the Committee (don’t I always?) because of the need to reference and explain the clauses in the Bill that have the outcome of small business destruction. And I’m not being melodramatic in using the word ‘destruction.’ I’m being technically correct based on the actual wording in the Bill.’
But even I glaze over when I re-read and review my long explanations. So to relieve you of potential boredom, in this post, I’m honing in on my more succinct answers to Senator Pocock that explain the outcomes. However, if you’re obsessed enough to understand the technical details here’s the link to the full reply. Oh yeah, when I use the word ‘technical’ I’m really referring to the legal ‘linguistic trickery’ that is the hallmark of this Bill.
Question 1- Senator Pocock asked. “You warn that this Bill will damage competition and result in a concentration of power in the hands of big business. Can you explain your concern for the fate of small business and competition in Australia in relation to this Bill?”
· by design removes the right of Australians to be small business operators—particularly to be self-employed, independent contractors, to be their own boss.
· forces every self-employed person to be an employee whether they wish to be an employee or not. The Bill is oppressively dictatorial in removing choice.
· captures all self-employed people, including all trades people, consultants and so on, but doubles down on capturing self-employed owner-drivers and anyone wishing to earn an income using digital (gig) platforms.
In doing this the Bill forces every person to earn their income through an ‘employer’. It eliminates the ability of people who wish to be a micro/small business person from being just that. As such there could be no greater legislative formula for the destruction of competition at the core of the Australian economy. The inevitable outcome is the favouring of big business.
But the Bill goes further. It creates mechanisms to facilitate, sanction, and ‘legalise’, collusion to control prices at the individual and sectoral levels where currently small business people operate and where they are entitled to, and do, compete. In doing this, the Bill will facilitate an immense concentration of economic power in the hands of big businesses.
Some practical outcomes
Our assessment of the practical outcomes of the Loophole Bill is based on decades of experience in, and knowledge of, the micro/small business, self-employed, independent contractor community. We assess the practical outcomes to include at least the following:
· The owner-driver sector will be wiped out over time. Large numbers of self-employed owner-drivers will go broke. Suicides will likely occur as a result. Numbers affected: 40,000 to 50,000 people at least.
· Large numbers of digital (gig) platform participants will find that the Loophole regulations will make their businesses commercially unviable and will exit the market over time. This will impact most heavily the 97 per cent of people who use the gig economy for top-up income. Numbers affected: 970,000 people plus.
· IT, management and other such consultants will progressively be forced to provide their services through dominant, large consultancy firms. This problem already exists but will get worse as self-employed consultants will have increased difficulty contracting directly with clients.
· Tradespeople in the housing sector, in particular, will progressively lose their independence and be forced to work through large construction firms under similar arrangements to those operating in the commercial construction space. Housing construction will, over time, become concentrated in the hands of small numbers of big business builders.
· The cash economy will expand. People denied access to gig-type work will turn to the shadow economy and under-the-table payments. (Note: Because gig work is all on-line transaction managed, payments are transparent and traceable for tax and other regulatory purposes.)
· Big business will have an expanded control of the Australian economy. The suppression of small business activity, and in many cases the elimination of small business, will favour big business. The Bill will create a competition vacuum in the economy into which big business will happily move.
· All self-employed people and the people/businesses who use their services will be faced with massive confusion and uncertainty over conflicting obligations in relation to tax, competition law, corporations law and more. This of itself will trigger a progressive collapse of the small business sector over time and create regulatory (tax etc) enforcement problems.
A moment’s reflection should remind us that big business is no friend of small business. History shows us that if big business can ‘do over’ a small business to gain advantage, this is what routinely occurs.
§ Security of payment for small businesses remains an ongoing, still-to-be-resolved problem, particularly in the construction sector for tradespeople. That is, big businesses delay payments to small business people, using them as a source of free credit. Big business use their power to oppress and bully small business people.
§ Unfair contract laws have been created and boosted to stop big businesses imposing unfair contracts upon small business people. These laws are administered by the Australian Competition and Consumer Commission. The Loophole Bill creates the capacity for Fair Work Commission rulings that would create a breach of the unfair contract laws, particularly in relation to price-fixing. And the Loophole Bill would arguably stymie the ACCC from ensuring compliance with the unfair contract laws. This scenario is real.
In 2015, then ACCC Chair Rod Simms gave a major speech on the issue highlighting specific cases where it could be argued that under the mask of an industrial relations agreement a business had colluded with unions to create agreements that would damage competitors. Rod Simms mentioned several cases, but one case stood out. That case was the transport company, Toll, who had been exposed as entering an industrial agreement with the Transport Workers Union on the condition that the TWU would conduct aggressive action against named competitors of Toll with the intention of harming the competitors. The effect of such action would be to harm competition.
The Simms speech is of major importance. (assess through this link)
Rod Simms said of the Toll case:
Unions have been given a clear role under the law to represent their members and take action seeking improved wages and conditions. However, this does not give them or businesses cooperating with them a licence to seek to regulate markets. They could take themselves outside the above exemptions if they seek to determine which firms may operate within markets, what prices they can charge or how bids for work will be determined.
In a market economy it should be the market that sets prices and determines who participates and who wins work, not unions or businesses. (page 3)
The Loophole Bill’s RSRT-like laws would result in the regulation of the road transport market through the backdoor of the industrial relations system. These RSRT-like laws would give unions “…or businesses cooperating with them a licence to seek to regulate markets”.
The very structure of the Loophole Bill would result in the outcome that Rod Simms says ought not occur.
Question 2 - Senator Pocock asked. “Does this Bill impose any risks on the viability and autonomy of relatively well-paid independent contractors?”
My Answer: Yes. By design, the Bill re-defines every self-employed person as an employee, thus legislatively removing their right to be a self-employed, independent contractor, their ‘own-boss’. The Bill is limitless in its reach and unrestrained by income level or any other factor. The Bill’s operational mechanisms have the capacity to directly attack the viability and autonomy of any independent contractor, no matter what their pay or income level.
Layperson’s Overview of the technical details
Rather than wadding through my long response to Senator Pocock’s questions here’s the laypersons’ overview that I hope will give you a sense of the legislative trickery.
The effect of the Loophole Bill is to cut across competition law and make price-fixing, market manipulation, and collusion to price-fix and manipulate markets legal, where those things are currently illegal. This will directly and negatively impact small business people. In fact it’s destructive of small business, particularly self-employed people.
In layperson’s language, the Loophole Bill does this by:
a) At the very broad level
· Declaring the commercial contract to be an employment contract for the purposes of the Fair Work Act.
· Giving the Fair Work Authority powers over those commercial contracts (now declared to be employment contracts) to fix prices and contract arrangements across entire industry sectors.
b) And then over-layering the broad level (a) with specific declarations about commercial contracts that are to be regulated and controlled as employment contracts, namely:
· Creating a definition of ‘employee-like’ to pull the gig economy (digital platforms) into the authority of the Fair Work Act and regulating those commercial contracts as employment contracts.
· Declaring owner-drivers who operate through commercial contracts to be regulated as employees under the Fair Work Act.
c) Then delivering to the Fair Work Commission new powers to regulate commercial contracts as employment contracts.
d) And finally has specific provisions to override competition laws to ensure that collusion, market manipulation and price-fixing authorised under the (Loophole) Fair Work Bill/Act are not restricted by competition laws.
The outcome of this is that the competition laws and the authority of the ACCC are compromised and neutered in areas where the Fair Work Commission makes rulings.
Further, there will predictably be circumstances where the Fair Work Commission has authorised anti-competitive activity, where such activity may continue to be illegal under competition law.
This is so because although the Loophole Bill declares commercial contracts to be employment contracts for the purposes of the Fair Work Act, that does not change the fact that the contracts are still commercial contracts for the purposes of competition law. That is, an anti-competitive activity under a commercial contract made ‘legal’ under the Fair Work Act will/can still be illegal under the competition laws. This will set up a clash between the statutory obligations of the ACCC and the statutory powers of the Fair Work Commission.
[The next 2 weeks (27 November to 8 December) are the final 2 sitting weeks of Parliament for the year. I’ll be ‘walking the halls’ during those weeks.]